What further stimulus measures might China deploy?

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China's Potential Further Stimulus Measures Include Reserve Ratio and Lending Facility Adjustments

China is expected to implement additional monetary easing measures beyond the recent benchmark lending rate cuts to support its economy impacted by the coronavirus outbreak. Investors anticipate further actions such as adjustments to the required reserve ratio and the medium-term lending facility. These potential measures are aimed at providing sustained support to businesses, particularly smaller enterprises facing significant challenges.
Adjustments to the Required Reserve Ratio

Further monetary easing is anticipated in the form of adjustments to the required reserve ratio (RRR). Macro strategist Mayank Mishra from Standard Chartered Bank suggested a potential easing of 100 basis points in the RRR. This measure typically involves lowering the percentage of deposits that banks must hold in reserve, thereby increasing the amount of money available for lending.
Modifications to the Medium-Term Lending Facility

In addition to RRR adjustments, modifications to the medium-term lending facility (MLF) are also part of the expected stimulus package. Mishra indicated a potential easing of 10 basis points in the MLF rate. The MLF is a tool used by the People's Bank of China to inject liquidity into the banking system, and a reduction in its rate would further lower borrowing costs.
Measured Pace of Easing

While further stimulus is anticipated, the authorities are signalling a measured approach to monetary easing. This suggests that aggressive, large-scale interventions may not be immediately forthcoming. The objective appears to be to provide consistent support without creating excessive expectations for rapid, extensive easing.
Fiscal Stimulus Expectations

Beyond monetary policy, investors are also betting on the deployment of fiscal stimulus measures. These actions are intended to bolster the economy, especially for smaller businesses struggling to navigate the crisis. The combination of monetary and fiscal support aims to mitigate the economic fallout from the coronavirus outbreak.

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What further stimulus measures might China deploy?

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